WASHINGTON (AP) _ Illness caused by contaminated seafood could be reduced if the government did a better job of monitoring pollution in oceans, lakes and streams, a National Academy of Sciences panel said Tuesday.

The committee, created by the academy's Institute of Medicine, also recommended tighter regulation of fishing vessels and seafood processing plants, but concluded ''the first level of concern is before harvest, making sure the living animals are safe to eat by controlling water quality and testing for toxins.''

''Various types of inspections are conducted by federal, state and local agencies, as well as by some fishery industries, but these are focused too much on the market product and not enough on the detection of contaminants in live seafood and growing waters,'' said the institute's study committee, headed by John Liston, professor emeritus at the Institute for Food Science and Technology at the University of Washington in Seattle.

Traditional animal inspection methods, which depend on butchered carcasses' sight, smell and touch, ''are essentially worthless for detecting and controlling health risks'' in seafood, the committee said.

Rather, the committee said, commercial and sport fishing should be allowed only in waters deemed by state inspectors applying national standards to be free of contaminants.

The report said very little inspection is conducted on fishing vessels to make sure fish are properly refrigerated and protected from contamination, mostly because few illnesses are traced to such problems.

It also said that, for the same reason, states don't spend much money on inspecting processing plants.

While saying that water quality is the biggest determinant of seafood safety, the panel endorsed a method of inspection that identifies all the health hazards at each step from the catch to the market with inspection focused at critical points.

The committee emphasized that while food poisoning is the most frequent illness caused by contaminated seafood, only 3.6 percent of food-poisoning cases come from fish.

Contaminated fish can also produce a persistent neurological impairment that causes tingling, paralysis and, occasionally, death. A third, less serious illness causes itching and other symptoms mimicking allergies.

Although Americans have increased their seafood consumption in recent years as they seek to cut cholesterol and saturated fat, the number of reported cases of illnesses caused by fish has not risen, the committee said.

Among concerns cited by the report:

-Raw oysters, clams and mussels taken from waters containing human sewage cause the most health problems.

-A natural toxin in waters around tropical islands in the Pacific and Caribbean sometimes causes fin fish, such as snapper, grouper and barracuda, to make people sick.

-Hazardous chemicals dumped in lakes and rivers can lead to health risks for people who eat fish caught by sportsmen.

-Warm water fish, such as mahimahi, tuna and bluefish that are not chilled as soon as they are caught, can also cause illness.

Ellen Haas, executive director of Public Voice for Food and Health Policy, a chief proponent of federal seafood inspection legislation, said the report makes the case for a seafood safety program.

''For the first time, there is a real clear discussion of the problems of environmental contaminants,'' she said.

She noted that the report calls for a cleanup of fishing waters, but said that could take decades, and stricter inspection regulations should be enacted in the meantime.

Seafood inspection legislation failed to pass Congress last year, largely because of a dispute between committees over whether the Agriculture Department or the Food and Drug Administration should have the most control.

Because an expanded inspection program is being sought by both the seafood industry and consumer groups, the legislation is expected to be reintroduced early this session.

The study was done at the request of the National Oceanic and Atmospheric Administration to assist it in designing a seafood inspection and certification program, as Congress required five years ago.